Revenue Note for Guidance
(1) The section applies to the Chapter the provisions of Chapter 4 of Part 9 which contains a number of general provisions supplementing the legislation on capital allowances. Thus, any references in the Tax Acts to capital allowances given by means of discharge or repayment and available against certain income only are to include references to allowances given under section 761(2).
(2) The section also applies specific provisions of Chapter 4 of Part 9 in a modified way to ensure a particular application in the case of patent rights.
(2)(a) Thus, in the application of section 312 (special provisions as to certain sales) to patent rights, where the seller and buyer of patent rights are under common control, the seller and buyer may make a joint election in writing to the inspector to have the sale of the rights treated as if it were made at the amount of the capital expenditure (on the acquisition of the rights) remaining unallowed instead of the open market price. Such an election may only be made where the tax written-down value of the asset is less than the open market price and the sale is not a sale the sole or main benefit of which is to obtain a capital allowance. In any such case, the seller will not have a balancing charge and the buyer will effectively be granted capital allowances on a reduced amount over the remainder of the writing-down period of the patent. However, in computing any future balancing charge to be made on the buyer in respect of the patent, account will be taken not only of the capital allowances granted to the buyer but also of the capital allowances granted to the seller.
A joint election to have the sale of patent rights treated as if it were made for the amount of the capital expenditure remaining unallowed may not be made if, at the time of the sale, any of the parties to the sale are not resident in the State. This rule will not apply, however, if the non-resident party or parties is or are entitled to a capital allowance, or subject to a balancing charge, as a result of the sale. This would arise where a nonresident company is carrying on a trade in the State through a branch or agency.
(2)(b) For the purposes of Part 9 (capital allowances for industrial buildings or structures, machinery or plant and dredging), section 316 provides that capital expenditure and capital sums do not include any expenditure or sum from which tax is or may be deducted under section 237 (annual payments made wholly out of taxed income) or section 238 (annual payments not payable out of taxed income). However, for the purposes of the application of section 316 to patent rights, this exclusion is not to include a sum in the case of which such a deduction is to be or may be made in charging capital sums received for the sale of patent rights under section 757.
Relevant Date: Finance Act 2020